What SmartCentres Real Estate Investment Trst (SRU.UN) Said on Its Q3 Earnings Call

Key Points

• FFO declined to CAD 0.54 per unit from CAD 0.59 a year earlier, mainly due to higher interest costs and the absence of a prior-year swap benefit. Adjusted FFO was CAD 0.55 per unit versus CAD 0.56.
• Retail operations remained strong: occupancy reached 98.2%, same-property NOI rose 2.5% (3.8% excluding anchors), and rents on lease renewals increased 6.8% overall.
• SmartCentres maintained its annualized distribution at CAD 1.85 per unit and plans to use asset-sale proceeds to reduce debt. Management identified up to CAD 100 million of less-strategic properties and another CAD 200 million–CAD 250 million of income-producing assets for possible sale.

SmartCentres Real Estate Investment Trst TSE: SRU.UN reported lower third-quarter funds from operations as higher interest costs and the absence of a prior-year swap benefit offset gains in occupancy and retail rents.

The real estate investment trust reported funds from operations, or FFO, of CAD 0.54 per unit for the third quarter of 2026, down from CAD 0.59 a year earlier. Management said it is advancing new retail developments while considering asset sales to reduce debt.

“Q3 was a solid performer for SmartCentres,” Executive Chair and CEO Mitch Goldhar said. He pointed to the resilience of the retail portfolio and the trust’s approach to development.

Occupancy and Rents Rise

Occupancy, including in-place and committed leases, rose to 98.2% at the end of the quarter from 97.6% at the beginning of the year, Chief Portfolio and Asset Management Officer Rudy Gobin said. SmartCentres signed deals during the quarter with retailers including Sobeys, Loblaws, Winners, HomeSense, Dollarama and Marshalls.

Same-property net operating income increased 2.5% overall and 3.8% excluding anchor tenants. Lease extensions reached 89% of leases maturing during the year, with rents rising 6.8% overall and 11.8% excluding anchors, Gobin said. Cash collections were 99% in the quarter, with no major tenant disruptions.

Goldhar said the trust leased more than 430,000 square feet during the quarter, including roughly 104,000 square feet of vacant space and about 330,000 square feet of new-build retail space. The latter included a Walmart lease in Kingston.

SmartCentres had commitments for four former Toys locations at quarter-end and secured a fifth shortly afterward, Gobin said. Some of that space is expected to come online in the fourth quarter, with the remainder beginning to contribute in the new year.

FFO Declines as Interest Costs Rise

Chief Financial Officer Peter Slan said the FFO decline included CAD 0.03 per unit from a total return swap recorded in the prior-year quarter. The swap was unwound in the second quarter of 2026. Interest expense rose by CAD 0.02 per unit, roughly half of which related to nonrecurring interest on deposits for condo sales where purchasers were offered cancellation rights.

FFO with adjustments, which excludes townhome profits, transactional gains and losses, and the total return swap, was CAD 0.55 per unit, compared with CAD 0.56 a year earlier. Slan attributed the decrease primarily to higher interest expense.

The trust maintained its annualized distribution at CAD 1.85 per unit. Its payout ratio to adjusted funds from operations was 90.9% for the 12 months ended September 30. Adjusted debt to adjusted EBITDA rose to 9.9 times from 9.8 times in the preceding quarter.

SmartCentres had approximately CAD 454 million of liquidity at quarter-end. After issuing CAD 450 million of unsecured debentures following the quarter and using the proceeds to repay maturing debt and other borrowings, liquidity rose to approximately CAD 750 million, Slan said. About 83% of debt was fixed-rate at September 30; Slan said the subsequent debenture issue increased that proportion.

Retail Development and Asset Sales

Goldhar said new Walmart-anchored retail centers are expected to contribute to earnings upon completion, but declined to provide a yield range while costs are being finalized. He confirmed that SmartCentres hopes to begin construction on projects in Winnipeg and Lindsay next year and said further retail development announcements are anticipated in the new year.

Initial phases of the new centers will generally be leased before construction, Goldhar said, although a small amount of speculative space could be built where appropriate. He estimated that substantial leasing of projects announced next year could take about three years.

The trust also commenced construction on an addition next to its existing SmartCentres Bolton property after securing long-term leases with a food store and a discount apparel retailer. Slan said Bolton is treated as an addition to an existing center rather than a new greenfield development.

On dispositions, Slan said approximately CAD 47 million of assets, including the trust’s share of equity-accounted investments, were classified as held for sale during the quarter. Goldhar put assets sold or designated held for sale at approximately CAD 50 million.

Goldhar said management had identified up to approximately CAD 100 million of additional less-strategic properties that could be sold, most of them not currently producing income. The trust had also identified roughly CAD 200 million to CAD 250 million of income-producing properties that might be considered for sale at appropriate prices, though he said it would not sell the entire group. Proceeds from dispositions are expected to be used to repay debt.

Park Place Cancellation

Slan said SmartCentres had decided to cancel the Park Place condominium project because it was not viable at the planned density. The trust is working to settle with purchasers, who would receive interest on their deposits if they accept the cancellation terms.

Slan said the trust took fair-value write-downs in the second quarter that included the land where Park Place is situated. He does not expect further charges specific to the project beyond the interest expense recorded in the third quarter.

About SmartCentres Real Estate Investment Trst (TSE:SRU.UN)

SmartCentres is one of Canada's largest fully integrated REITs, with a best-in-class and growing mixed-use portfolio featuring 200 strategically located properties in communities across the country. SmartCentres has approximately $12.3 billion in assets consisting of income producing value-oriented retail, purpose-built rental, first-class office and self-storage properties. SmartCentres owns 35.5 million square feet of leasable space with 97.6% in place and committed occupancy, on 3,500 acres of owned land across Canada.

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